Ireland's position in Europe: between a rock and a hard place

For example, when the pressure comes on us to raise our low corporation tax rate as part of tax harmonization across Europe, Britain won't be the same strong voice standing on our side.

France and Germany have their own ideas about the future of Europe and about the pace of further financial and economic integration. The only big player who took the same view as us, a more individual, free market view, was the U.K. Now we'll be on our own, with maybe some support from a few small countries.

The main points of the "fiscal compact" deal agreed last week are not an immediate problem for us because, as we pointed out here recently, we are already nailed to the cross by the terms of our EU/IMF bailout.

The headline points in the deal, like the maximum 3% of GDP annual deficit and the maximum 60% debt to GDP ratio, are already part of the EU's agreed targets for states.

The target of cutting our budget deficit to 3% by 2015 is part of the terms of our bailout and is why we had such heavy cutbacks in spending this month in the budget for 2012. And it's why even more severe cutbacks will follow here each year over the next three years at least.

The deal also gives much greater power to the center to impose automatic sanctions on countries that break the rules. This can include Europe effectively taking overall control of the finances of individual states to force through savings.

That sounds horrendous, but it's exactly what the IMF-EU team do here every three months when they come to Dublin to check Ireland's books.

For states who fail to observe the deficit and debt rules in future there will be detailed scrutiny of budgets before they are spent, including proposed spending in individual departments. The center (in other words France and Germany) will take control if unreliable peripheral states like Ireland or Greece get out of line.

These are some of the points in the deal on compliance with the budget rules and some of the sanctions for those countries which don't meet them.

In our case, failure to meet these targets would mean our bailout money would dry up, so the new compliance rules are not a big deal for us, although they will be there permanently.

But there are more worrying changes to the voting system which would mean in practice that unless we had a big country on our side, in future we would not be able to stop the implementation of new fiscal rules and targets which we might not like.

That, for us, is the general problem with this deal. Without the counterweight of the U.K., it means that France and Germany together will have far too much say in what happens in the future of Europe.

The immediate problem is that the deal concentrates almost exclusively on the fiscal problems of Europe, the budget deficits being run by the weaker countries and the debts they are piling up as a result. But that is not the only problem, and fixing it won't be enough to save the euro.

Sovereign debt is only half the problem. The other half is the banks and the huge cash reserves that are required to backstop the euro.

Experts have suggested that at least a trillion euro is needed for this, but the deal last week does not come near providing that. The introduction of the ESM (European Stability Mechanism) -- the EU's permanent bailout fund which will replace the present temporary set-up -- is to be in place by next July with around half a trillion available, the deal promises. But who is to stump up the cash seems vague, so we will have to wait and see what happens.

A major complication in the deal reached last week is the legal situation. Because of the British veto, the new deal cannot be implemented through EU structures. It will have to be implemented outside the existing EU legal set-up built on treaties between the member countries.

Because Britain has to be bypassed, the deal will become a reality through agreements between the other countries, legal agreements outside the EU framework.

Initially we were told that the European Court of Justice would have a role in deciding whether countries were sticking to the targets in the deal; how that can be possible if this is all outside the EU structures is hard to understand.

In other words, in spite of all the exhausted back slapping after the marathon meeting in Brussels, what we have is far from clear. What was announced after the meeting was just the headlines.